| By Vihari
Atul Auto: In top gear
The shares of Atul Auto Ltd. (AAL) (Code: 531795) (Rs.103.75) are recommended for decent gains in the long-term.
Incorporated as a private limited company in June 1986, AAL was converted into a public limited company in August 1994. The company set up its plant at Shapar (Rajkot district), Gujarat with a production capacity of 24,000 vehicles p.a. (single shift basis). The plant is equipped with CNC machine shop, fabrication shop, paint shop, test house etc. Its R&D Center is located at Pune. AAL has its own Wind Turbine Generators of 1.85 MW capacity at Village Soda, Nr. Jaisalmer, Rajasthan for generation and distribution of power.
AAL manufactures diesel three wheelers like 6-seater auto rickshaws, pick-up vans for local transportation of goods and chassis of passenger vehicles. The 6-seater auto rickshaws, pick-up vans for local transportation of goods and chassis of passenger vehicles are marketed under the ‘Khushbu' brand name.
Other products are sold under the brand ‘Chhakada', ‘Shakti' and ‘ Atul Gem'.
During FY11, while sales advanced by 57% to Rs.194 crore, net profit zoomed 109% to Rs.9.8 crore and the EPS was Rs.15.7 and a dividend of 40% has been declared. During Q4FY11 net profit shot up by 11% to Rs.1.9 crore on 41% increased sales of Rs.59 crore.
AAL's equity capital is Rs.6.1 crore and with reserves of Rs.27.7 crore, the book value of its share works out to Rs.55.4. The value of its gross block is Rs.59 crore whereas its debt:equity ratio is 0.7:1. The promoters hold 59.3% in the equity capital, foreign holding of 5.3%, PCBs hold 14.8% leaving 20.6% with the investing public.
AAL is keen to collaborate with a company whose technology will help it manufacture light commercial vehicles (LCVs). The technical team of AAL is evaluating the product configuration and the commercial aspects of the proposal.
Since the area of its plant at Shapar in District Rajkot is not sufficient to manufacture the new product and due to availability of skilled manpower in areas surrounding Ahmedabad, AAL has decided to explore the possibilities of acquiring land in or around Ahmedabad. However, the final decision on the project will be taken after evaluating all commercial, financial, legal and procedural aspects of the project and the Company will inform all Regulatory authorities about the developments in the subject.
The future prospects for AAL are good in the long-term. According to ACMA's report, the two-and-three wheeler vehicles are expected to double to 2.2 crore units by 2015 and touch 3 crore units by 2020 driven by the low penetration level, expanding rural sales and growth in exports. The growth drivers like road infrastructure developments, development of rural markets, restriction of heavy vehicles in the city together with availability of easy & low cost finance will trigger the growth in the 3-wheeler industry.
AAL has tied-up with Bangladesh based M/s. Atul Autos Bangladesh Ltd. to promote the sales of the vehicles manufactured by AAL in Bangladesh. It has also signed a MoU with Punjab National Bank to provide auto financing for all its products across the country.
Its share in the 3-wheeler market is less than 3% but it is expanding its presence in Andhra Pradesh, Rajasthan and Maharashtra while entering new markets like Kerala, Karnataka, Bihar and Assam. It also plans to export its 3-wheelers to parts of Asia and Africa.
AAL is expected to post an EPS of Rs.18-20 in FY12. At the current market price of Rs.103.75, the share is trading at a P/E multiple of 5.6 against the industry average of 12.5 for the 2 & 3-wheeler industry. Applying a reasonable P/E of 7.5 will take its share price to Rs.135 in the medium-term, which would fetch a gain of about 35%. The 52-week high/low of the share has been Rs.160/93.
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Torrent Cables: Powerful outlook
The shares of Torrent Cables Ltd. (TCL) (Code: 523856) (Rs.78) are recommended for decent appreciation in the long term based on its improving fundamentals.
Belonging to the Gujarat based Torrent Group TCL is a market leader in the HT Power Cables segment. It was the first cable company to get ISO 9001: 2000 certification. It also initiated QII (Quantum Initiative Improvement) drive and as a part of it undertook a reengineering study of its manufacturing operations. TCL's manufacturing facilities are located at Nadiad near Ahmedabad where it manufactures various types of cables for the power sector. Since Torrent Private Ltd. holds 61% of the equity of TCL it is a subsidiary of Torrent Private Ltd. TCL's key customers belong to the Government Sector.
In FY11, TCL's net profit fell 35% to Rs.6.9 crore on 47% higher sales of Rs.245.3 crore. However, it has vastly improved its performance in Q1FY12. During this quarter, net profit jumped 63% to Rs.5.3 crore on 36% higher sales of Rs.81.5 crore and the quarterly EPS was Rs.6.2 as against Rs.8 for full FY11.
TCL has a small equity of Rs.8.6 crore with huge reserves of Rs.126.8 crore, which gives the share a book value of Rs.157. The value of its gross block is Rs.112 crore whereas its debt:equity ratio is 0.08:1.
The promoters hold 61% in its equity capital with foreign holding of 0.6% and PCBs holding 4% leaves 34.4% with the investing public.
In FY11, its margins had been affected by the rising prices of process raw materials. The increase in input prices had to be absorbed by TCL. Also due to excess production capacity in the industry, there is severe competition which affected the price realization.
TCL's new HT XLPE line went fully operational during the year. The major refurbishing and renovation of the old HT XLPE line in the current year should help maintain the production level.
TCL plans investments of Rs.5-8 crore to overcome the imbalances and enhance the output of the new HT XLPE line by nearly 15%. This is, however, expected to be operational in the last quarter of FY11.
Coming to future prospects, the Central Plan Outlay for the Power Sector has been enhanced from Rs.66,097 crore in the Budget 2010-11 to Rs.72,754 crore in the Budget 2011-12. The GDP growth at 8.6% in real terms in 2010-11 and expectations of 8-9% in the current financial year are encouraging. A strong emphasis on infrastructure is clearly visible in the Union. Budget with the increased allocation for the infrastructural sector.
The total installed power capacity rose to 1,70,469 MW by December, 2010 compared to 1,23,901 MW in December, 2006 and is poised for record capacity addition of 15,000 MW during the present financial year.
This suggests that the demand for power will grow. Utilities have to be efficient and reduce transmission and distribution losses and conversion of overhead lines to underground cabling particularly in cities. This should help the cable industry sustain growth.
As the Indian economy prepares for sustained growth of 7.5 - 9%, the importance of power sector will increase and the demand for power is expected to grow at 7.5% - 8% CAGR till 2017. The government's focus on attaining 'power for all' has accelerated power capacity addition in the country. The next few years may see huge investments in the power sector. For FY12, TCL is likely to post a net profit of Rs.15 crore, which would fetch an EPS of Rs.17.4. Going forward, the EPS can go up to Rs.20 in FY13. At the current market price of Rs.78, the TCL share is traded at a P/E multiple of 4.5 on FY12 estimated earnings and 3.9 time the FY13 projected earnings. The TCL share is recommended with a price target of Rs.100, which would yield a gain of about 25%.
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